The Pakistan Credit Rating Agency Limited
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Haider Imran

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PACRA Maintains Instrument Rating of Soneri Bank

Rating Type Debt Instrument
Action Maintain Maintain
Long Term A+ A+
Short Term - -
Outlook Stable Stable
Rating Watch - -

The rating reflects SBL's maintained business profile as the bank managed to hold its system share in deposits (1.8%). Despite YoY volumetric rise in earning assets, mainly on account of surge in investment portfolio, the spreads came under pressure – a phenomenon witnessed industry-wide on the back of lower prevailing interest rates. The management strives to reduce costs of funds through mobilization of current deposits; material progress remains to be seen. The management’s strategy incorporates increase in advances; however, the bank remains cautious towards private sector lending. Hence, net advances witnessed shrinkage during 9MCY16. Fresh accretion in NPLs is limited. Thus asset quality was largely maintained. Deposits grew by 9%; however, concentration in top-20 depositors inched up, warranting management’s attention. The bank maintained sound liquidity and good risk absorption capacity. The overall CAR has come down to 15% at end-Sep16 (end- Sep15: ~17%), a factor of rise in risk weighted assets. As part of strategy, the management intends to increase the proportion of high-quality assets in its overall mix. While it may compromise bottom-line performance, it is likely to have a positive impact on CAR.

The rating is dependent on the bank's ability to maintain its market position in the industry while strengthening its overall risk profile. Bringing efficiency in overall operational structure is important to rationalize costs. In comparative landscape, adding granularity to core operations - deposits and advances - is critical. Meanwhile, increase in system share would be ratings positive.

About the Entity
SBL, established in 1991, operates with a network of 281 branches across the country. Feerasta family, owners of the Rupali group, holds the controlling stake (58%) through three trusts and individuals. The eight-member BoD, with diversified experience, comprises two nominees of Feerasta family, three independent directors, two NIT representatives, and the CEO. Mr. Aftab Manzoor, CEO since 2011, is a seasoned banker. He is assisted by an experienced management team.

About the Instrument
SBL issued its 2nd unsecured, subordinated, and listed TFCs of PKR 3,000mln in July 2015 to enhance cushion in capital adequacy. The tenor of the instrument is eight years ending in 2023. Profit rate is based on 6M-KIBOR Plus 135bps p.a. payable semi-annually in arrears. Major principal repayment (99.7%) would be in bullet form at maturity in Jul-23 (96th month). SBL retains the call option on the instrument, which may be exercised, in part or full, after five years (Jul-20) of issue, subject to SBP's approval. The issue carries a lock-in clause and is also subject to loss absorbency. Keeping in view the projections, cushion to loss absorbency is expected to remain comfortable.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.